The FDIC Quarterly provides a comprehensive summary of the most current financial results for the banking industry, along with feature articles. These articles range from timely analysis of economic and banking trends at the national and regional level that may affect the risk exposure of FDIC-insured institutions to research on issues affecting the banking system and the development of regulatory policy. The FDIC Quarterly brings together data and analysis that were previously available through three retired publications -- the FDIC Outlook, the FDIC Banking Review, and the FYI: An Update on Emerging Issues in Banking. Past issues of these publications are archived under their original publication names.
FDIC-insured institutions reported aggregate net income of $37.2 billion in the first quarter of 2014, down $3.1 billion (7.6 percent) from earnings of $40.3 billion the industry reported a year earlier. The decline in earnings was mainly attributable to a $7.1 billion (10.7 percent) decline in noninterest income. Lower income from reduced mortgage activity and a drop in trading revenue contributed to a year-over-year decline in nonin¬terest income. Additionally, noninterest income was higher one year ago due to a one-time gain at one institu¬tion. Despite the decline in earnings, more than half of the 6,730 insured institutions reporting (54 percent) had year-over-year growth in quarterly earnings. The proportion of banks that were unprofitable during the first quarter fell to 7.3 percent from 8.5 percent a year earlier.
Community Bank Performance
Community banks—which represent 93 percent of insured institutions—reported $4.4 billion in earnings with net interest income up five percent over first quarter 2013. While overall earnings declined, the 1.5 percent decline was less than the 7.6 percent decline for the industry. Lower noninterest income and higher noninterest expense reduced earnings for community banks. Community banks hold 45 percent of small loans to businesses and saw annual total loan growth of almost 7 percent.
Insurance Fund Indicators
Estimated insured deposits increased by 1.9 percent in the first quarter of 2014. The DIF reserve ratio was 0.80 percent at March 31, 2014, up from 0.79 percent at December 31, 2013, and 0.60 percent at March 31, 2013. Five FDIC-insured institutions failed during the quarter.
There has been a great deal of focus recently on banking industry consolidation and its effects on community banks. New analysis based on the FDIC's functional definition of the community bank shows that these institutions have been highly resilient amid long-term industry consolidation. The rate of attrition among community banks over the past decade has been less than half that of noncommunity banks. When community banks have been acquired, almost two-thirds of the time the acquirer has been another community bank. After more than 30 years of consolidation, the evidence strongly suggests that community banks will continue to carry out their important financial role for the foreseeable future.
This article discusses rural depopulation, a long-term trend that not only encompasses half of the nation's rural counties, but also intensified in many areas in the 2000s. Technological advances that continue to make farms larger are the main driver of the trends, and as such the Great Plains and the Corn Belt are the areas with the most counties experiencing population outflows. Community banks in depopulating areas tend to specialize in agricultural lending, which is far less common in metropolitan and micropolitan areas. The unusual strength in the agricultural sector in the 2000s, even through the U.S. recession, helped community banks in depopulating rural areas avoid many of the asset quality and earnings issues that affected banks located elsewhere. The strong agricultural sector also enabled these institutions to grow assets and deposits at relatively high rates, when such growth had been challenging in these areas before the agricultural boom.